Annuitants receiving a FERS pension who are considering going back to federal service: here are the rules.
Edward A. Zurndorfer–
A federal employee who retired under the Federal Employees Retirement System (FERS) may be reemployed in any appointive or elective position for which he or she is qualified. In general, the treatment of a FERS annuitant’s FERS annuity and salary upon reemployment in the federal government depends upon whether the annuitant retired on the basis of a regular (normal), involuntary or a disability FERS retirement. Potential benefits that may be earned as a result of the reemployment federal service depends primarily on the length of the reemployment service.
This column presents the reemployment of FERS annuitants who are not either “special provisions” annuitants (retired as a law enforcement officer, a firefighter, or an air traffic controller), or under a FERS disability retirement. Among the topics to be presented:
- The eligibility requirements for reemployment of FERS annuitants
- The treatment of the FERS annuity and salary upon reemployment
- The computation of the amount offset from salary when the FERS annuity continues
- The eligibility requirements for and the computation of a FERS supplemental annuity and a FERS redetermined annuity
- The application procedures for a FERS supplemental or a FERS redetermined annuity.
Eligibility for FERS Reemployment Service
An employee who retires under FERS and is receiving a FERS annuity he or she earned may be reemployed in any appointive or elective position in federal service for which he or she is qualified.
Status of FERS Annuity Upon Reemployment
When a FERS annuitant is reemployed, his or her FERS annuity continues in full. However, as discussed below, in most cases the reemployed annuitant’s salary will be adjusted.
When the FERS Annuity Terminates Upon Reemployment
Under FERS, a reemployed annuitant’s FERS annuity will be terminated only when the annuity is based on a FERS disability retirement and OPM has found that the annuitant has recovered or is restored to full earning capacity. There is no provision in FERS to terminate an annuity based on involuntary separation or upon a Presidential appointment.
A reemployed annuitant’s FERS annuity is suspended when: (1) the annuitant is appointed as a justice or judge of the United States as defined by Section 451 of title 28 of the United States Code; or (2) the annuitant receives an interim appointment under the order of an administrative or judicial form under the provisions of the Public Law 101-12.
Treatment of Salary Upon Reemployment
The salary of a reemployed FERS annuitant is subject to: (1) Offset by the allocable amount of the annuity during the period of reemployment; and (2) FERS retirement deductions. Note that retirement deductions (see below for amount) are withheld even if the reemployment is under a temporary employment. Retirement deductions will not be withheld if the appointment is intermittent or covered by another retirement system for federal employees, such as the CSRS.
The following general rules apply to FERS annuitants whose annuity continues upon reemployment:
- The salary received during reemployment is offset by the allocable amount of annuity (discussed in more detail below).
- The FERS retirement deductions for FERS employees hired between 1/1/1990 and 12/31/2013 is 0.80 percent of salary. For FERS employees hired during 2013, the FERS deduction is 3.1 percent of salary, and for FERS employees hired after Dec. 31, 2013, the deduction is 4.4. percent of salary.
- Eligibility for a FERS supplemental annuity (discussed below) accrues after one actual continuous year of full-time reemployment, or the part-time equivalent.
- Eligibility for a FERS redetermined annuity (discussed below) after five or more actual continuous years of full-time reemployment, or the part-time equivalent; and
- Social Security (FICA) and Medicare Part A (hospital insurance) payroll taxes are withheld on the amount of salary after the reduction for the annuity payable.
Note the following: (1) the reemployed annuitant’s agency must pay the normal agency FERS contribution based on the reemployed annuitant’s salary before any offset, in addition to the Social Security (FICA) and Medicare Part A (hospital insurance) payroll tax matching contributions; and (2) the above rules regarding a reemployed annuitant’s offset of salary do not apply when a reemployed annuitant is approved for a waiver of offset of salary under exceptional or unusual circumstances.
Amount Offset from Salary
The gross amount of the FERS annuity that is allocable to the period of reemployment must be offset from the reemployed annuitant’s salary (unless there is a waiver). The amount of offset from salary is paid into the FERS Retirement and Disability Fund.
The formula for computing the amount of the offset is as follows:
- (Gross monthly annuity x 12)/2087 (number of hours per work years) = Hourly rate of annuity
- Hourly rate of annuity x hours of basic pay = Amount of salary offset for the pay period.
The following example illustrates:
Catherine is a FERS reemployed annuitant with following salary and annuity information:
- 1. Bi-weekly salary = $5,000
- 2. Gross monthly annuity = $4,000
- 3. Hours of basic pay each pay period = 80
($5,000 x 12)/2087 = $60,000/2087 = $28.75 (hourly rate of annuity)
$28.75/hours x 80 hours = $2,300 (amount of offset each pay period)
Since Catherine’s bi-weekly salary is $5,000, her net pay after the offset equals $5,000 less $2,300, or $2,700
Note the following:
- 1. If the number of work-year hours for the reemployment position is other tan 2087 hours, then use that figure in computing the hourly rate of the FERS annuity.
- 2. If the amount of offset is equal to or greater than the bi-weekly salary, then the bi-weekly salary will be $0.00.
Computation of FERS Supplemental Annuity
A supplemental FERS annuity is payable to a reemployed FERS annuitant only if the final period of reemployment contains at least one year of actual continuous (not intermittent) full-time and/or part-time (equivalent to at least one year of full-time) service.
The following service is excluded from the supplemental annuity credit:
- 1. Service under another retirement system such as the CSRS retirement system
- 2. Service in a non-pay status
- 3. Service as a federal judge
- 4. Service credited in a prior supplemental annuity; and
- 5. Service already credited in original FERS retirement annuity calculation
The final period of reemployment is the period immediately prior to the separation in which title to the supplemental annuity is based. A separation for title purposes exists when:
- There has been a break in service for more than three calendar days
- Employment changes from full-time to part-time to intermittent, or
- The annuitant is reemployed in a position excluded from FERS annuity supplemental credit.
The FERS supplemental annuity is computed using the general formula that is used in the computation of the FERS annuity when a FERS employee retires. In particular, the general formula depends on the reemployed annuitant’s length of service (including unused sick leave earned during the period of reemployment service) and the reemployed annuitant’s average salary earned during the period of reemployment service. Both of these factors are now discussed.
• Average salary. The average salary is the average of the full rates of basic pay in effect during all period of reemployment credited in the computation with each rate weighted by the time it was in effect. Note the following: (1) the high-three average salary used in the computation of the original FERSR annuity (when the FERS annuitant originally retired) does not apply even if the reemployed annuitant works three or more years; (2) full rates of basic pay are used in the computation of the average salary even if the reemployed annuitant was not receiving the full rate due to the “offset” of the annuity; (3) full credit is used in the computation for the time spent in reemployment from the date of appointment to the date of separation. However, the salary is prorated between the part-time tour of duty and full-time tour of duty as the following example illustrates.
Roberta, a reemployed FERS annuitant, is reemployed for 10 months at a salary of $100,000. After that time, she continues working part-time for five months. Her part-time salary is one-half of $100,000, or $50,000. Her average salary for her supplemental FERS annuity is computed as follows:
$100,000 for 10 months = $100,000 x 10/12 = $83,333.33
$50,00 for four months = $50,000 x 4/12 = $16,666.67
Total salary = $100,000.00
Divided by service factor (15 months) = 1.50
Average salary = $100,000/1.5 = $66,666.67
• Creditable service for computational services. The service includes all periods of actual full-time and part-time (but not intermittent) service, plus length of service represented by any unused sick leave hours to the reemployed FERS annuitant’s credit earned during the period of reemployment.
In the computation of a FERS supplemental annuity, FERS service is credited at the rate 1 percent of the average salary per year of service. The 1.1 percent of average salary per year of service (which is used in the computation annuities of FERS employees who retire at age 62 or older with at least 20 years of service) does not apply in the computation of a FERS supplemental annuity.
The following example illustrates:
James had 5 years of FERS reemployment service including six months of unused sick leave. His average salary is $120,000.
James’ FERS supplemental annuity is equal to:
five years of service + 6 months of unused sick leave = 5.5.x 1 percent x $120,000 = $6,600/year = $550/month
FERS Supplemental Survivor Annuity
A reemployed FERS annuitant must have elected a reduced FERS annuity to provide a regular FERS survivor annuity in order to elect an additional survivor annuity benefit for the FERS supplement annuity. The supplemental survivor annuity is to provide an additional survivor annuity to a spouse (or a former spouse, if applicable) entitled to a survivor annuity. This is unless the reemployed annuitant elects in writing not to provide the additional survivor annuity to the spouse.
FERS Redetermined Annuity
A reemployed FERS annuitant who completes at least 5 years of actual continuous full-time reemployment service and/or part-time reemployment service (that is equivalent to at least five years of full-time service) may elect to have his or her existing FERS annuity redetermined under the law in effect at the time of separation from reemployment, in lieu of a FERS supplemental annuity.
Note that in addition to having performed the required minimum five years of actual continuous reemployment service, a FERS reemployed annuitant must have met the minimum requirements for a “new” FERS retirement outright and redetermined. The following example illustrates:
Sheila retired under a Voluntary Early Retirement Authority (VERA) at the age of 49 with 25 years of FERS service. She was reemployed one year later at a federal agency at age 50 as a reemployed annuitant. She worked full-time for five years until she was age 55. Sheila is not eligible for a FERS redetermined annuity because she does not meet the requirement of attaining minimum retirement age (MRA – Sheila’s MRA is age 56) and 30 years of service. Sheila is eligible for a FERS supplemental annuity.
Some Advice and Recommendations to FERS Annuitants Considering Reemployment
- 1. FERS annuitants with questions regarding their retirement status should include these questions in their application/resume for reemployment.
- 2. As a condition of FERS reemployment, a FERS annuitant is required to advise the hiring agency whether he or she is in receipt of a FERS annuity, and whether he or she is receiving a FERS annuity based on an early retirement.
- 3. If eligible upon separation from reemployment, a reemployed FERS annuitant may apply for a supplemental or a redetermined annuity. To do so, the reemployed annuitant must complete form SF 3107 (Application for Immediate Retirement) and file the application with the employing agency within 31 days of the day of separation, or with OPM if the application is filed more than 31 days after the date of separation.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
